ConocoPhillips Approves $12.3B Capital Budget
ConocoPhillips on Thursday approved 2007 cash capital expenditures of approximately $11.8 billion. Combined with about $0.6 billion for loans to affiliates and a $0.6 billion contribution to fund the recently announced EnCana transaction, the total cash capital spend is expected to be $13.0 billion. Including capitalized interest of $0.5 billion, the total authorized capital program for 2007 is $13.5 billion.
"Our 2007 planned capital program reflects our commitment to selectively invest in projects that will enable us to deliver energy to consumers worldwide, while providing long-term value for our shareholders," said Jim Mulva, chairman and chief executive officer. "The reduction in the 2007 capital program versus the 2006 capital program primarily reflects the company's completion of our planned 20 percent equity investment in LUKOIL. In addition, given the increasingly challenging business environment, which has been marked by rising costs, greater discipline in capital spending is warranted to better ensure value delivery over the long term. Accordingly, we have prioritized our capital projects for 2007. This prioritization will enable us to more quickly reduce debt and increase dividends and share repurchases. Assuming continuation of the current cost environment, this capital program is expected to result in a slight reduction to the company's medium-term production growth rate."
Eighty-four percent of the company's 2007 total authorized capital program will be allocated to its Exploration and Production segment. The Refining and Marketing segment will receive approximately 13 percent, with the remaining being spent in Emerging Businesses and Corporate. Additional details on the capital program for each of the company's business segments are provided below.
"We look forward to discussing our 2007 capital and operating plans in greater detail when we meet with the investment community on March 14, 2007, in New York," said Mulva.
Exploration and Production (E&P)
E&P's 2007 capital budget, including capitalized interest of $0.5 billion, is expected to be $10.2 billion. This, combined with approximately $0.6 billion for loans to affiliates and the company's planned $0.6 billion contribution to the EnCana transaction, results in a total E&P capital program of $11.4 billion. Worldwide exploration activities of approximately $1.5 billion and global gas activities of about $0.4 billion are included in the geographic totals below.
In North and South America, the E&P capital program is expected to be about $6.5 billion.
- In the U.S. Lower 48, this includes ongoing development programs in the San Juan Basin, the Permian and Barnett Shale basins in the Mid-Continent region and the Bossier and Lobo trends in the Gulf Coast region; and new project developments such as the Piceance Basin.
- Spending in Canada will focus on ongoing development programs in the Western Canada gas basins; progression of heavy oil projects, including those associated with the EnCana transaction; and continued work on the Mackenzie Delta gas pipeline project.
- E&P capital spending in Alaska is expected to be primarily directed toward the development of the Alpine satellites and the West Sak heavy-oil field, as well as continued development within the existing Prudhoe Bay and Kuparuk areas.
- Within South America, the company's primary focus will be on the development of the Corocoro field offshore Venezuela.
In Europe, Asia, Africa and the Middle East, the E&P capital program is expected to be approximately $4.9 billion.
- Projects in the North Sea include continued development of Britannia, including the Britannia satellite fields, in the U.K. sector; and development of the Alvheim and Statfjord fields, as well as ongoing development of existing and new opportunities in the Ekofisk area in the Norwegian sector.
- In the Russia and Caspian Sea region, the majority of the capital funds will support the continued development of the Kashagan field in the Caspian Sea and the Yuzhno Khylchuyu field in northern Russia.
- Within the Asia Pacific region, the majority of the funding will support the continued development of Bohai Bay in China; oil and gas reserves offshore in Block B and onshore South Sumatra in Indonesia; and fields offshore Malaysia and Vietnam.
- Funding in Africa is primarily for the ongoing development of the Waha Concession in Libya and several oil mining leases in Nigeria.
- In the Middle East, the company will focus spending primarily on the development of the Qatargas 3 liquefied natural gas facility in Qatar.
Refining and Marketing (R&M)
The 2007 capital program for R&M is approximately $1.7 billion, with about $1.3 billion of this amount allocated to ConocoPhillips' U.S. businesses.
The company has allocated $1.1 billion for U.S. refining, primarily for projects related to sustaining and improving the existing business with a focus on reliability, energy efficiency, capital maintenance and regulatory compliance. Work continues at a number of refineries on projects to increase crude oil capacity, expand conversion capability and increase clean product yield.
International R&M is expected to spend about $0.4 billion, with a focus on projects related to reliability, safety and the environment, as well as the advancement of a full-conversion refinery project in Yanbu, Saudi Arabia. The company continues to study other international refinery projects.
The remaining R&M capital budget is for projects in the company's domestic transportation and marketing businesses.
Emerging Businesses and Corporate
The 2007 capital program for Emerging Businesses and Corporate is approximately $0.4 billion. The majority of the spending is earmarked for power generation, primarily for an expansion project at the company's Immingham Combined Heat and Power plant in the United Kingdom.
In Corporate, capital expenditures are expected to be primarily for global information systems and services projects.
Energy Resource Development
"In addition to the capital budgeted in 2007 for projects that will provide needed energy supplies in the near- and long-term, the company also will increase research and development spending on technology by 50 percent to more than $150 million annually," said Mulva. "Research and development efforts will focus on projects that aid the development of unconventional oil and gas resources, such as Canadian oil sands, as well as the development of new energy sources, such as alternatives and renewables.
"The company is committed to diversifying its energy resource development, significantly enhancing the efficiency of energy use, and doing so in a way that addresses climate change and other environmental concerns. ConocoPhillips believes a number of sources of energy are necessary to meet the demands of consumers, including fossil fuels, unconventional sources like oil shale and heavy oil, and alternatives like biofuels. The company intends to become a leader in new energy resource development."
Asset Rationalization Program and Company-Owned Retail Outlets
"Our asset rationalization program is progressing well," said Mulva. "Consistent with our previously announced expectations, we are on target to achieve proceeds of approximately $3 billion to $4 billion by the end of 2007.
"In addition, we are completing a study on how best to market our domestic refinery system's clean products. ConocoPhillips plans to market gasoline, diesel fuel and aviation fuel through approximately 10,000 outlets, the majority of which utilize the Phillips 66, Conoco or 76 brands. However, our company-owned and operated outlets will be divested to existing or new wholesale marketers."
Of the approximately 830 retail outlets scheduled for divestiture, 330 are company-owned and company-operated. The remaining outlets are operated by dealers. As a result of the adoption of this plan, the company anticipates recording a charge to earnings for a held-for-sale impairment of about $200 million (after tax) in the fourth quarter of 2006.
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